By Hao Li: Subscribe to Hao's RSS feed
July 21, 2010 6:44 PM EDT
From a broad economic perspective, economists see both pros and cons of extending the unemployment insurance. While it provides an immediate boost in consumer spending, it also adds to the swelling public debt.
Background
U.S. lawmakers are poised to extend unemployment insurance that would restore benefits to 2.5 million people who had lost them. The aid averages $310 per person and covers them for up to 99 weeks. Total unemployment extensions since the recession began will cost $120 billion. [The current extension, which would add 53 weeks, will cost an estimated $33 billion.]
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Republicans have blocked this measure for weeks because they want Democrats to offset the expenses by cutting spending elsewhere rather than simply borrowing the amount and adding to the public debt. Of course, while this gridlock occurred, it was probably excruciating for the 2.5 million people who stopped receiving benefits and probably relied on them because they had been out of work for a long time.
Short-term Boost
Michael Englund, chief economist at Action Economics, said that he upped his forecast for near-term personal income and spending simply because the extension puts a significant amount of money in people's hands. Diane Swonk, chief economist of Mesirow Financial, added that “nearly everything that is received via unemployment insurance is spent” instead of hoarded.
Deficit Fatigue
However, Englund said that U.S. businesses and consumers have become “deficit fatigued,” especially over the last 4 or 5 months. Generally speaking, he said people are more concerned about the growing debt than they are happy about benefits that government stimulus spending provides.
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